[youngstyle]

I have a few questions on Becker simulation.

Jones, Mitchell, Carey, and Gorman are knowledgeable about landscape design. They have decided to pool their knowledge and resources to form Arrington Enterprises, Inc., a C corporation. They will provide professional services to area businesses and homeowners. All participants expect to work full time for Arrington Enterprises, and each expects to contribute sufficient assets to become a 25% shareholder with a total stock equity of $50,000 each.

In addition to the skills that each brings to the new entity, the owners will contribute assets that will enhance the company’s ability to provide quality technical design and planning services. These assets include a building, land, lawn care equipment, office furniture and equipment, and cash for initial operating expenses.

The table below shows the assets contributed by each shareholder. In all cases, the liabilities are recourse and are assumed by Arrington Enterprises, Inc. There are no tax avoidance purposes inherent in the assumption of shareholder liabilities.

Shareholder contributions to Arrington Enterprises.Inc

Jones $120,000 $60,000 $100,000 $0 $10,000

Mitchell $ 80,000 $50,000 $40,000 $20,000 $0

Carey $40,000 $20,000 $20,000 $30,000 $0

Gorman $70,000 $0 $50,000 $0 $20,000

*the first number: Noncash property contributed (FMV)

the second number: Liability associated with property

the third number: Basis in noncash property contributed

the fourth number: Cash contributed

the fifth number: Cash distributed to shareholder

So the first question is

What is Jones’ tax basis in shares?

The answer is $40,000.

But here is what I think.

Jones contributed $100,000 basis in property with haas $ 600,000 liability attached to it

so his basis is $40,000 ( this is how Becker got their answer). However, the corporation distributed $10,000.

His basis should be $30,000 since he received boot when contributing the property.

My second question is

What is corporation tax basis for assets that Mitchell and Carey transferred in.

.

So for Mitchell, even though the liability assumed by corporation was greater than the basis of Mitchell’s property,

she also contributed cash of $20,000, which makes the corporation basis of $60,000. but the answer is $40,000

Also for Carey, the basis of Carey’s property was $20,000 and the cash contributed was $30,000. I believe the tax basis of the corporation should be $50,000. but the answer is $20,000

For both Mitchell and Carey, the corporation did not take the cash contributed by Mitchell and Carey into the answer.

I know it is a very long question. Please someone help me out..I thought I was pretty much ready but this is killing

my confidence!!

 

 

[youngstyle]

@PJJW thank you so much.. really.

I am trying to finish all four sections in 6 months and REG is my last one.

I didn't have any problem with AUD,FAR,BEC, but this REG is not like others..

well, i have one more week to study, and I guess I will be putting a period to this journey.

Thank you once again!!

[youngstyle]

@PJJW thank you so much.. really.

I am trying to finish all four sections in 6 months and REG is my last one.

I didn't have any problem with AUD,FAR,BEC, but this REG is not like others..

well, i have one more week to study, and I guess I will be putting a period to this journey.

Thank you once again!!

[youngstyle]

oh yeah,,one more thing

for partnership basis, it's exactly the same as corporation, except that the liabilities the contributor's portion of liabilities are not assumed. right?

[youngstyle]

oh yeah,,one more thing

for partnership basis, it's exactly the same as corporation, except that the liabilities the contributor's portion of liabilities are not assumed. right?

[PJJW90810]

For recognized gain, just remember boot received i.e cash can result in recognized gain AND when liabilities assumed is greater than your adjusted basis it can also result in recognized gain.

For S/H basis, general calculation is adjusted basis + recognized gain – boot received – liabilities assumed.

For C corp basis, basis of property contributed plus any gain recognized.

For Partnerships, the liability assumed by the other partners are taken into consideration for your basis.

For like kind exchanges, cash is considered in the basis. Cash is also considered in the basis on the S/H in a C corp too. See the Jones example.

FAR: 77 (08/07/13)
AUD: 78 (08/29/13)
REG: 76 (11/07/13)
BEC: 79 (12/06/13)
Ethics: 98%

Application sent 12/31/13

Used Becker Self-Study

[PJJW90810]

For recognized gain, just remember boot received i.e cash can result in recognized gain AND when liabilities assumed is greater than your adjusted basis it can also result in recognized gain.

For S/H basis, general calculation is adjusted basis + recognized gain – boot received – liabilities assumed.

For C corp basis, basis of property contributed plus any gain recognized.

For Partnerships, the liability assumed by the other partners are taken into consideration for your basis.

For like kind exchanges, cash is considered in the basis. Cash is also considered in the basis on the S/H in a C corp too. See the Jones example.

FAR: 77 (08/07/13)
AUD: 78 (08/29/13)
REG: 76 (11/07/13)
BEC: 79 (12/06/13)
Ethics: 98%

Application sent 12/31/13

Used Becker Self-Study

[youngstyle]

Than you once again. your summary really helped.

I am looking forward to end this journey next week..I hope?

[youngstyle]

Than you once again. your summary really helped.

I am looking forward to end this journey next week..I hope?

[PJJW90810]

You will! Good Luck!!

FAR: 77 (08/07/13)
AUD: 78 (08/29/13)
REG: 76 (11/07/13)
BEC: 79 (12/06/13)
Ethics: 98%

Application sent 12/31/13

Used Becker Self-Study

[PJJW90810]

You will! Good Luck!!

FAR: 77 (08/07/13)
AUD: 78 (08/29/13)
REG: 76 (11/07/13)
BEC: 79 (12/06/13)
Ethics: 98%

Application sent 12/31/13

Used Becker Self-Study

[Author]

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